Mortgage Funds To Remain Frozen

Post by Sharat on February 9, 2010 · Under Australian Economy, Business News, Capital Markets, investments · Comment

Mortgage fund investors may be required to wait as many as four years for access to cash held in frozen investments.

Investor group Light of day believes that as few as half a dozen of Australia’s over 200 mortgage funds will resume redemptions during the next 18 months, and most will only allow them on a highly restricted basis.

The majority of investors however, will be required to wait a few years before being allowed access to their principal, because managers continue to be afraid that a resumption in redemptions would result in a run.

“A handful of funds could be reopened to redemptions in the next 18 months if they can sell a property or two, but it will remain a very difficult situation,” Light of Day managing director Owen Lennie said.

Mr. Lennie said that the reluctance of banks to lend to business following the global financial crisis has meant that even if there were potential buyers of properties, financing was not available.

In October 2008, unlisted funds, which manage $25 billion in assets of 240,000 investors fell in to crisis, after the federal government announced measures which included guarantees of bank deposits of up to $1 million.

The federal deposit guarantee provoked a flight to quality, as investors rushed to exit their investments in mortgage funds, in favour of bank deposits, prompting mortgage fund managers to suspend redemptions.

No Australian mortgage or property fund has lifted conditions on redemptions fully.

Earlier in the week, the government announced that it would cease to provide federal guarantees on wholesale bank funding from March 31st, but would continue to guarantee retail bank deposits at least until October 2011.

The unlisted funds sector is mainly comprised of property funds and mortgage funds.

Morningstar analyst Tim Murphy said the unlisted funds industry had changed fundamentally because of the freeze, and many of the investors caught out would be unlikely to return to the sector.

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